Author : John E. Charalambakis
Date : May 16, 2011
As a sort of preface for our newsletter next month we will briefly touch upon some general sentiments we hold for holding positions in assets that will rise with the expected global infrastructure boom.
The table above comes from the IMF’s World Economic Outlook last spring and we used it in our March newsletter this year on opportunities in global microcaps. Other institutions concur with the outlook from the IMF regarding the growth story that is developing from the emerging world. The developments underway from Latin America, to South and East Asia and other regions of the globe – such as the New Middle East and N. African region – will have enormous consequences in these respective communities. One of the premier changes will be changes in lifestyles and demands to experience a more quality life. Power infrastructure and electrical generation will certainly be in extravagant demand and could be the area that explodes the most. Indian electrical supplies are about 20% below demand for example and that gap will only widen as India continues to churn high rates of growth. In emerging Asia as a whole, some 80% of future infrastructure investments will be in energy and transport sectors, so as to accompany the region’s growth demands.
McKinsey and Company published a piece in March regarding Asian infrastructure growth. With the crisis resulting in governments filling in for missing demand, deficits widened. As a result funds will be needed for private capital to help finance investments. In an older report, Cohen and Steers, a well regarded real estate investment firm, projected that the world would spend approximately $40 trillion over the course of the next 25 years. $10 trillion alone will come from China and India over that time as the two giants have large sections of their country cut off from regions of their respective countries that are booming with economic activity.
The emerging world will be leapfrogging into technologies of the future while also building roads, bridges, and energy stations. The developed world has fallen behind in the upkeep of its own infrastructure, tragically witnessed with the collapse of a bridge in Minnesota a few months ago. Maintenance will also play a large role in the poorer parts of the world. Ambassador George Staples, who served in a diplomatic capacity throughout sub-Saharan Africa, often cites that a major development challenge facing these countries is infrastructure maintenance rather than construction. He states that aid, grants, and loans are harder to secure for these projects as they are not “new” ventures.
Expanding infrastructure networks goes hand-in-hand with the future of the emerging world’s economic growth. Energy, transport, telecommunications and other forms are all complementary elements towards a vibrant economy. Goods, information, services and capital will all have new means and destinations with which it can experience growth and connect with new partners and markets.
We will have more for you next month on the prospects for global infrastructure but we hope this commentary has served as an appetizer to a large course that will play out for a couple of decades.
Ode to the New Silk Road!